Thursday, November 20, 2008

It’s official, Goldman capitulates on oil

Oil is below $49/Bbl, $48.70 down $4.00 last I saw.From FT Alphaville:

Goldman’s latest commodities note is out, and this is all you need to know:

Closing our oil trading recommendationsAlthough we have emphasized in the past few weeks that continued weak oil demand exacerbated by constrained credit conditions will contribute to soften near-term fundamentals keeping WTI prices, timespreads and gasoline cracks under pressure, we have left our oil trading recommendations open, expecting that high volatility would provide a better exit point to our trades. The volatility in the past few weeks has mostly been to the downside and the pressure on the oil complex has increased. In the near term, we do not expect significant upside potential and as a consequence we are closing all of our oil trading recommendations.

Translation: We were wrong and we’re sorry. Ouch.

From Barron's:

Goldman Backs Off Its Oil ‘Super Spike’ Theory

TURNS OUT, $200 CRUDE WAS TOO AGGRESSIVE A CALL

That ‘’super spike” in oil prices that Goldman insisted would lift crude to $200 a barrel ….? Turned out to be a dagger that has pierced Goldman itself. It never really turned out to be that prescient: instead of the 50% jump in oil that Goldman anticipated back in May, when it made the call with crude trading at $132, the price of a barrel never got more than 11% higher. And has since, of course, lost fully two-thirds of that price in the intervening four months.

Now Goldman is left with the ignomy of summarily abandoning the investors who listen to its research calls, telling them effectively that they’re on their own. On Thursday, Goldman said it was ”closing” its recommendations for oil trades. Meaning that in a perilous time when the traders who pay attention to Goldman’s recommendations could use some guidance the most, Goldman has opted to give them the least. And some traders are furious about it, comparing the maneuver to then-strategist Abby Cohen’s decision to abandon her targets for equity indexes in the fall 2001, citing the uncertainties abounding in the market.

Goldman specifically talked about four trade recommendations it previously issued, and said clients shouldn’t put any stock in them any longer. One particular trade, a Nymex-WTI swap on the 2012 contract, issued in September, when crude already had declined to below $70, suggested that the contract would reflate to a range of $120 to $140. Obviously, that hasn’t happened....MORE